As business owners, entrepreneurs, tax professionals and accountants grapple with various issues, here is an attempt to present a comprehensive compilation of various GST Issues in India – both policy as well as implementation issues.

If we have missed some issues, please email to admin@bizvidya.com to have those issues added to this list.

[A] GST Implementation Issues

Digital Signature Issues:

A seemingly simple but essential aspect of filing returns led to considerable delays. Under GST, all returns have to be signed electronically with a digital signature certificate (DSC). Jigar Doshi (SKP Group) pointed out that many of his clients were unable to attach DSC due to technical issues. Pratik Jain (PWC) said the DSC was not getting accepted for authentication of returns, despite being valid and functioning and it took multiple attempts to authenticate the returns by using DSC (5).

A particular company could not pay tax, as the CFO of the company holding the digital signature had resigned. The new signatory could not be added until the old signatory allowed the use of his digital signature to include new signatory. The situation gets worse in cases where the signatory has expired or has moved out of the country (4).

TRAN 1:

Taxpayers who intend to carry forward transitional credits – from the pre-GST regime – can file form TRAN 1 till September 28. But those who intended to use the transitional credits to offset their tax liability in July had to fill this form by August 28. To fill out this form, the Goods and Services Tax Network had promised an offline utility tool. But the GSTN failed to deliver on its promise (5).

With the August 28 (Monday) deadline looming for filing returns and ensuring GST compliance, corporates are a deeply concerned lot. The offline utility for GST TRAN 1 form — to be used to claim input tax credit for the pre-GST regime — was not available till Sunday, leaving just a day for filing returns and causing a weekend rush (8).

E-cash ledger

An e-cash ledger works like a wallet for GST purposes. It reflects the amount deposited towards GST liability and debits made to pay tax, interest or penalty. In the GSTN system, the cash ledger for all the laws – Central, State and Integrated GST – is maintained separately, Pratik Jain (PWC) said. But there is no facility to transfer funds from one cash ledger to another, he added. The balances in electronic cash ledger belong to the taxpayers and so, transfer of balances between different heads in electronic cash ledger should ideally be allowed, he added.

Besides this, multiple entries are shown in the electronic cash ledger and sometimes credits made available are more or even less than actually claimed in TRAN-1; obviously these are system errors, Jigaar Doshi (SKP Group) pointed out (5).

Handling data errors:

A another aspect that continues to confound taxpayers about TRAN -1 is whether they can submit a revised TRAN-1 before September 28. A few tweets from government handles suggest that TRAN-1 can be revised; however, there is no clarity on this (5).

There have also been cases where companies have deposited cash under the wrong tax head or have submitted the return with wrong information only to realise it later but with no recourse to change it (4).

Jain pointed out that the GSTN did not allow any rectification or modification in the return once it was submitted. In some cases, the tax liability of the assessees increased by crores of rupees, just due to inadvertent punching of an extra digit in the form, he added. Much to the relief of assesses, the government has now addressed this concern and notified that changes in the summary returns can be made through GSTR-1 and GSTR-2 (5).

Invoice Date Issues:

Some taxpayers are facing errors when the invoice date is before the customers’ registration date (1).

“Since this is the first time of filing GST returns taxpayers are struggling with how to report information under different sections of the GSTR-1. Some are confused and are reporting the same invoice under separate sections of GSTR-1. Some taxpayers are seeing errors where invoice date is before the date of registration of the supplier,” says ClearTax, Founder and CEO (2).

Data Required Mismatch with Notified Rules: The additional data and columns that the GSTR-1 has is different from the format which was notified. For example, there is a column which asks the reasons for giving a debit note. It even asks if the debit note is corresponding to pre-GST or post-GST time frame. This is not there in the notified rule, but when you go online to file the return, such additional data gets thrown up. (2)

Auto-Checks: There are times when companies are uploading invoices, but the system automatically says the invoices cannot be from the pre-GST regime. What has stumped many is the auto-checks the system has been built around. Any divergence and the system refuses to take an entry. “Taxpayers are navigating through a complex web of auto checks, which many a time is not allowing valid transactions, keeping them at tenterhooks. For instance, supplies to SEZ has an IGST component, but the system is not allowing IGST if the supplier is in the same state,” says KPMG, Partner, Priyajit Ghosh. (2)

[B] GST Policy Issues

Hand Crafted Goods ignored: A note prepared on behalf of the hand-made goods segment and shared with the Prime Minister’s Office draws attention to the fact that the word ‘hand’ (as in, for instance, hand-made or handicraft) is entirely missing from the GST list of items – except for a perfunctory reference to ‘handloom machinery’. This implies that the concepts of ‘handwork’, ‘handicraft’, and ‘hand skills’ have not been acknowledged at all in the GST framework (6).

Small Sellers required to register if selling inter-state: Every supplier, howsoever small, is required to register under GST when making inter-State supply, which adds to the compliance burden forvery small players like artisans. For example, they may be selling to online portals or those who conduct fairs in various States (6).

Small Exporters:

Small exporters are disadvantaged vis-a-vis big players like those with coveted star trading house tag as they are being asked to furnish bonds and Letter of Undertaking (LUT) to local commissioners unlike the latter (3).

What is more, exporters are running between the offices of customs commissioners and assistant customs commissioners who have been officially delegated powers to accept bonds and LUT but are reluctant to use the new authority for some reason, industry sources said (3).

Credit on Business Expenses: It is recommended to allow credit on all business expenses rather than restricting some of them. The negative list is still quite big and open to interpretations (4).

Credit linked to Recipient making Payment: It is recommended that Credit should not be linked to the recipient making payment to the supplier. Business exigencies may require holding back payments or business transactions may require not paying the supplier at all. The government need not walk into the realm of business transactions, especially when online matching ensures that the tax on the underlying transaction is paid (4).

Multiple Tax Slabs for similar items:

The same product can fall under differential tax slabs. For instance, there is no GST on rice sold loose, while branded rice attracts 5% tax. But because a brand is not recognised legally unless it is registered under the Trade Marks Act, 1999, India Gate, the country’s highest-selling rice brand, will not attract the 5% GST – and will, therefore, have a price advantage over competing registered brands (7).

A similarly curious clause is that yarn blended with more than 50% polyester attracts 18% GST, but yarn with more than 50% wool has a levy of 5% GST. In Uttar Pradesh’s Bhadohi, famous for its carpets, officials were recently asked by traders what GST rate applied to blended yarn with 50% wool and 50% polyester. They did not have a clue.Some suppliers in Bhadohi say they have already planned to show yarn blended with more than 50% polyester as yarn with more than 50% wool in their records (7).

A textile manufacturer pointed to the irrationality of imposing 18% GST on processing chemicals and 28% GST on finishing chemicals, which are used in two different stages of production. Both chemicals come in black boxes, he said. Remove or switch stickers and government officials cannot tell one from the other. Yet the manufacturer said that there are fears that the officials might accuse manufacturers of playing this game even if they have not – and demand money (7).

A fully constructed apartment bought by making a one-time payment will incur zero GST after undergoing verification from a regulating committee. By contrast, all construction-linked payments for flats will incur 18% GST. An apartment costing Rs 1 crore under such a plan will attract Rs 18 lakh as tax, an undeniably huge sum. One realtor said that he could foresee what will happen. He said to save on GST, Person X will book a flat in the name of Y, who is his dummy. The instalments Y pays will actually be X’s money. When the last instalment is due, Y will notify the builder that he does not want to buy the flat, said the realtor. The builder will tell the regulating committee that Y has backed out, but he is fortunate to have a new purchaser in X. The builder will refund Rs 80 lakh to Y, whose money it wasn’t anyway. X will then buy the now completed flat for Rs 1 crore and not pay GST, said the realtor.Such a method will raise issues of income disclosures, but the narrative underscores that multiple, high tax rates are already driving people to think of dodging GST (7).

The state is asking to be cheated by hotels where multiple GST rates also apply. Rooms priced between Rs 1,000 and Rs 2,500 attract 12% GST, but those between Rs 2,500 and Rs 7,500 will have 18% GST. It is possible that hotels with low occupancy will woo customers by making them stay in the more expensive rooms, but bill them for those priced lower. The state will lose 6% tax (7).

Many low-priced items such as needles, kites, carnival toys and broomsticks are now taxed. Mahesh Krishnamurthy, founder of Craftisan, an e-commerce platform for hand-crafted products, says that under the earlier tax regime, in Delhi, VAT was 0 to 5 per cent for handlooms and handicrafts, but now the tax range is from 3 per cent to 18 per cent. “The retail price for consumers will have to increase, which may potentially cause reduced absorption,” he says. Also, certain products and raw materials that are hand-made by the most disadvantaged groups are under punitive GST rates (6).

Recently, I shared my opinion on problems faced by ventures @ growth stage @ Yourstory.com and how Sociocracy could well be the magic wand for organizations struggling to deal with rapid growth despite a great product line-up and overflowing funds.

Here are a few excerpts:

Let us look at a typical startup story. There is no doubt that to create a successful startup, one needs grit, determination and perseverance. Often, this is achieved by single-minded focus of usually one or sometimes more co-founders, with the support of a passionate and loyal team. This core group endures and transcends it all – long working days and nights, low salaries, deeply frustrating moments, multiple pivots and so on. Most of the members of this core group are superheroes who singlehandedly take on innumerable complex tasks and complete them with scarce resources. This persistent hustling leads to that first big moment of success – either a multi-million dollar purchase order or the first infusion of big funds or, simply, reaching the threshold revenue level that holds promise of no looking back.

Once celebrations are over, a new larger office space is taken and new hirings done, and a new reality starts dancing in the organisation. New features need to be designed, new products need to be launched, new customer segments need to be ‘acquired’, and, to achieve all this, new teams need to be built. The ‘new’ organisation needs new infrastructure, organisation structure, policies, and so on.

Despite these daunting tasks, there is excitement in the air, after all, with new deep pockets, everything will work out perfectly, and it often does. However, for most startups, it is not so smooth – rather, the beginning of a “rapid growth” period is often the beginning of a new “perplexing” reality. Perplexing, because, things start breaking randomly with nobody ever getting time to get to the root cause, customers complaining, employees leaving and a general sense of chaos that does not seem alarming, as it appears to be a natural side-effect of sudden growth.

This is a stage that almost every business faces when it rapidly moves from being a startup to a new formal organisation. Initially, it might simply appear to be a problem of team size.

However, my conclusion after closely observing a wide range of organisations is that most entrepreneurs and investors simply do not think about proactively building an organisational culture that is most suitable to the values of co-founders and the long-term vision of the organisation. What is often missed is an attempt to address this question: while building new infrastructure, policies and systems, should the venture try to retain its original culture, or, realising that the rapidly growing organisation is taking new shape, consciously consider new ways to work together and, perhaps, design an altogether new organisational culture?

In my opinion, the perplexing chaos happens because importance is not given to three fundamental issues:

Defining the relationship between the employee and the organisation in an empowering and engaging way

Defining how people communicate, share information, conduct meetings and take decisions

Proactively providing forums to give opportunity to each and every employee to speak up

Now, this is the classic easier-said-than-done situation. In recent times, the software development industry has tried to deal with this problem by using agile and related methodologies like Scrum and Extreme (XP) – however, these have been found to be tricky to implement in large projects. Much earlier, during 1970s, Gerard Endenburg, after many years of experimentation and application, developed a dynamic governance system using consent decision-making and an organisational structure based on cybernetic principles (a closed loop system with a feedback mechanism). This resulted in a formal organisational method called the ‘Sociocratische Kringorganisatie Methode‘ (Sociocratic Circle Organising Method). By 1980s, Endenburg had founded the Sociocratisch Centrum (Sociocratic Center) in Rotterdam to help other organidations adopt the approach. Since then it has spread across the world with numerous success stories.

I am particularly finding sociocracy to be a near-perfect system for startups that are dealing with the ‘rapid growth’ phenomena. Sociocracy is just beginning to take roots in India. I have been part of sociocracy implementation at Digital Empowerment Foundation (DEF), New Delhi. John Buck and Shammi Nanda, along with many sociocracy leaners and practitioners, have formed a ‘Sociocracy South Asia Network’ in India to support organisations interested in implementing sociocracy.

As I see, sociocracy allows everyone in the organisation to have a say in decision-making without slowing down implementation – rather, many processes start moving faster. Any member of the organisation, at any hierarchical level, can propose new initiatives in their respective circles. Eventually, the organisation benefits from more participation and creativity, higher energy levels and enthusiasm, deeper commitment and happiness, longer retention and overall a much more adaptive, agile and effective organisation.

If your organisation is growing, then sociocracy might well be the magic wand you are looking for to achieve sustainable growth of your venture.

Every business wants to increase revenue and cut expenses. How about if you do both of those things, and help the planet at the same time?

How? By going greener in your business.

Yes, I know—you’ve heard for years: “I’d love to go green but it’s too expensive and difficult!” Maybe you’ve even said this.

The good news is that’s nonsense. Done the right way, going greener can be easy, cheap, and profitable.

Let me say that differently: sure, there are plenty of expensive, difficult ways to green a business. But there are also lots of ways to go greener that you can do quickly and easily, for little or no cost. Since going green is a process and not an absolute, start with the easy, cheap, and profitable things!

Then you can allocate the money you save into new green initiatives that might not have quite so high an ROI.

1. Cut Your Paper Costs by 60 Percent or More—In Two Easy Steps

As your printers and copiers wear out, replace them with the “duplexing” kind, capable of printing both sides of the paper automatically. Set the defaults to double-sided printing, and train your staff to keep those settings unless they’re doing something that needs to be single-sided—which, usually, is a very tiny percentage of the paper flow. When I did this, I immediately started saving about 40 percent of my paper costs (and I use recycled paper, which usually does cost more).

And even before that, train your employees to bump up the default screen magnification or font size (using the View: Zoom command in Microsoft Word or most web browsers, and the Settings or Preferences command in e-mail programs) so that even though it takes the same space to print, the screen displays bigger type: comfortable enough to read. I used to print documents that were more than five pages or so, but now I’ll read even 50 pages on the screen, because the big print doesn’t make my eyes tired nearly as fast. Now, I sometimes go many days without even turning on my printer.

2. Plug the Energy Holes

How much energy is leaking right out of your building, or sucked away by “energy vampires”? If you’re like most businesses, you’re losing a lot that you can recapture with two quick, inexpensive methods.

Put your hand next to an empty electrical socket on a wall that borders the outside. If on a cold winter evening or a hot summer day, you feel a temperature difference between the inside and outside air, you’re feeling your hard-earned money slipping through the wall. Air that you’ve paid to heat or cool to the optimum temperature is migrating outside, increasing your complicity in global climate change while running up your energy bill.

You can easily stop this air from flowing out. A tiny investment in foam insulators and outlet protectors will pay for itself very quickly. In the US, where I live, many utility companies will give you the foam insulators for free. Even if you have to buy them at the hardware store, they’re very cheap. It takes under two minutes to unscrew the socket or switchplate cover—remember, you only have to do the ones on outside walls—pop in the foam pad, and screw the cover back on.

Now, for any outside-wall socket that doesn’t have a plug in it, pop in an outlet protector: a little piece of plastic designed to keep baby fingers out of trouble. Hardware stores have them in the baby department.

Finally, caulk any windows that leak air around the edges (use removable rope caulk if these windows are designed to open) and install door sweeps if you’re losing air around exterior doors,

Once you’ve blocked all that air from migrating back and forth, get rid of your “energy vampires”: equipment that stays on all the time, in standby mode, even when switched off—anything that turns on instantly without any warmup is probably guilty of sucking out a surprisingly large amount of power over time. The easiest way to deal with this is to buy multi-outlet power strips that have an on-off switch. Get in the habit of turning the power strips off until you need them, and your printers, copiers, computers, coffee machines, microwave ovens and other devices will stop drinking power all night long. If you train your staff to flip those switches, you’ll be amazed at how much you save.

3. Market to the Green Consumer

The green market is growing at better than 29 percent a year, according to Allen Rubin, director of the National Environmental Hall of Fame.

And as soon as you begin to take some steps toward lowering your carbon footprint and conserving resources, you’re entitled to approach this lucrative market. The more you do to go green, of course, the deeper you can go with messages about sustainability to win new business and higher revenues. But even if you’re just starting with the easy steps above, you can make this a marketing opportunity—NOT by “greenwashing” or pretending to be greener than you are, but by using these tentative steps as a jumping off point to engage your customers and prospects. For example, an in-store or social media campaign that says “this is what we’ve done so far. If you were us, what else would you do to go farther down the green path?

More Easy Green Ideas

If you’re excited about saving more energy and resources, here’s a gift for you: a free copy of my e-book, Painless Green: 111 Tips to Help the Environment, Lower Your Carbon Footprint, Cut Your Budget, and Improve Your Quality of Life-With No Negative Impact on Your Lifestyle. Just visit http://painlessgreenbook.com/earthday, and enter the code, “earthday” (without the quote marks).

Want to market green products and services to green AND non-green audiences? Marketing consultant, syndicated columnist, and copywriter Shel Horowitz shows you how to “reach green, socially conscious consumers with marketing that has THEM calling YOU.” He specializes in green and ethical marketing strategies and materials for businesses and organizations. The primary author of the category bestseller Guerrilla Marketing Goes Green: Winning Strategies to Improve Your Profits and Your (John Wiley & Sons, 2010), Shel writes the monthly column Green And Profitable. His website is http://greenandprofitable.com.

Days Sales Outstanding (DSO) is your company’s average collection period.

The smaller this number, the faster you are in collecting money from clients.

[For the mathematically inclined, a more accurate measure of your Collection Department’s performance is the Percentage of Overdue Amount (monies beyond due date) to Total Due Amount (Total uncollected amount including fresh sales) – also, known as Days Delinquent Sales Outstanding (DDSO). See Advantage of using DDSO to measure the effectiveness of the credit department (http://www.encyclopediaofcredit.com/WebHelp/articles/risk_analysis/art730.htm )].

Depending on the nature of your business (for example, number of transactions, customer profiles, and competition), you may choose from a variety of strategies and tactics to reduce your Accounts Receivables Average.

Tip #1: Re-evaluate your Credit Sales Policy

Why are you selling on Credit? Why not Sell ‘Cash’?

Sell ‘Cash’! On Zero Days Credit! Even better, see how you can collect advance before delivering a product or a service.

Yes, you heard it right!

Question your product/service/marketing strategy – why are you selling on credit, at all?

Take a fresh look at your product/service basket and market segments.

Perhaps, you can identify products/geographical regions where customer will willingly/happily pay cash. This could be because your product or service is tightly coupled with (and/or is essential to) the customer’s workflow and you can create an edge over competitors due to stock availability, location, price, etc.

Create a marketing/selling strategy on how you can channel adequate energies and resources on finding and selling in those areas (Location/Features/Price) where customers will easily pay cash.

Don’t do business with any and everyone. Do background checks before committing transaction with a new customer. Identify and give higher priority to faster paying customers. Fire your low-value slow paying customers.

Tip #3: Streamline Your Collections Process

Insist on having your collection follow-up process move with clock work precision.

Based on Due Date of Outstanding, schedule the escalation process – Emails, SMS, Calls, Visits and Legal Recourse.

Ensure that the monitoring team regular sends New Customer Verification Reports, Credit Policy Deviation Alerts, and alerts on payment variations and disputes.

Tip #4: Update Your Customer Contact Details

Over a period of time, customers change their contact persons, phone numbers (including landline), email-ids and even physical locations. Having an updated customer contact database facilitates the collections process and this could be critical in following up on delayed payments and/or taking legal recourse.

Tip #5: Train Your Team to Follow up with rigor and discipline

A well trained tele-calling follow-up team knows when to use appropriate tricks of the trade – like calling on odd-hours, when to insist on cheque number, follow-up based on customer’s cash flow cycle, and so on.

The deadline for filing Corporate Tax Returns for FY 2008-9 in India, September 30, 2009, just passed by. This date was known a year back.

Many businesses did not file the returns on time, and would be paying late/penalty fees!

Accountants and Business Owners “know” about this deadline much in advance. But, the balance sheet is finalized on the last day, after days of frenetic late night error fixing by the accounting team and auditors. If you have a relatively large-volume business, the COST of such an approach could be HUGE, for example:

Loss of productive business hours during those error-rectification days.

Money bled away in delayed identification of missed payment discounts, unaccounted material returns and other disputes in supplier accounts (Large companies outsource “bill and payment checking” work to ensure benefits like payment discounts are recovered before it is too late).

Similar losses in non-resolution of disputed amounts in customers’ ledgers.

So, why do businesses indulge in such last minute rush to reconcile accounts? Why the Student Syndrome? Why study the night before the day of your exam?

Standard “excuse” is that the handling day-to-day emergencies or crises rarely leaves time for setting up and improving systems!

You do need a huge amount of self-discipline to take out time to move towards streamlined operations.

Therefore, it is necessary to make someone accountable for setting-up error free accounting systems and commit one or more dedicated resource for that. This is much cheaper than losing money in ledger errors and wasting resources in last minute adjustments.

To have error-free Accounting Systems, you need to break the student syndrome. Stop studying the night before the day of your exam (which might work for solopreneurs or a low-volume business, but a disaster for a business having significant number of transactions every day)!

Start by creating an Accounting Operations Manual – begin with simple checklists to ensure accounts are tallied every month, for example:

Synchronize Bank Account Statements with your ledger balances every month. Make the necessary journal entries to book/resolve bank charges and other deviations.

Compare & reconcile Ledgers with suppliers and customers every month and file-off synchronized ledgers – so that you do not start all over again. (If you are using digital formats like spreadsheets, convert them to PDF to avoid tampering).

Ensure that there is a well-defined Petty Cash & Expense Policy that published to all concerned and clear instructions on penalty for non-adherence (for example, deadlines for submitting travel vouchers)

Last, but not the least, analyze the SOURCE of accounting errors and deviations specific to your business – that will tell where you MUST have well-documented processes.